In September 2008, the United Kingdom (“UK”) Financial Services Authority (“FSA”) introduced provisions to the Code of Market Conduct prohibiting short selling in UK financial sector stocks and imposing daily disclosure requirements with respect to short positions in such stocks (the “Short Sale Provisions”). See “FSA Bans Short Selling in Financial Stocks and Requires Daily Short Position Disclosures” (SRZ Alert, 19 Sept. 2008). On 22 Oct. 2008, the FSA relaxed the daily disclosure requirement. Once a disclosure had been made, additional disclosures would only be required when the short position changed. See “FSA Clarifies Short Sale Exposure Requirement” (SRZ Alert, 31 Oct. 2008).
The Short Sale Provisions were introduced on an emergency basis and are due to expire on 16 Jan. 2009.
On 5 Jan. 2009, the FSA published a Consultation Paper (CP09/1) setting out its proposals in relation to the Short Sale Provisions. The FSA proposes to allow the ban on short selling UK financial sector stocks to expire on 16 Jan. 2009, but to extend the disclosure obligation until 30 June 2009. Although the ban on short sales will expire, the FSA has made clear that it, or similar restrictions, could be re-introduced at any time if circumstances require.
The FSA proposes amending the disclosure obligation so that once a disclosure had been made to the market, additional disclosures would only be required to be made to the market if a short position changes significantly. For these purposes, a disclosure threshold is proposed at each 0.1% above the initial disclosure threshold of 0.25% of the issued capital of the underlying financial company. Any short position (whether increasing or decreasing) which crosses a disclosure threshold would need to be disclosed under the FSA proposal.
The FSA does not at this time propose to make any changes to the market sector (ie banks and insurers) or the specific companies covered by the rules. However, the FSA expects to publish a further consultation in the next month setting out its views on short selling with regard to the market as a whole.
The FSA is inviting comments on the proposals. Given that the Short Sale Provisions expire on 16 Jan. 2009, responses are requested by 9 Jan. 2009. Responses may be submitted electronically via the FSA’s website (http://www.fsa.gov.uk/pages/Library/Policy/CP/2009/cp09_01_response.shtml).